Free Private Cities: The Future of Liberalism
With the rapid globalisation that began after the collapse of the Eastern bloc, much of the world got richer quickly. China and India’s partial liberalisations lifted more people out of poverty than any event in human history. Though faith in socialism waned, most regimes were unwilling to liberalise quickly or completely, and so a hybrid economy became increasingly widespread. Private enterprise would be tolerated, but not without considerable state intervention and regulation. Different degrees of corporatism — state-directed and regulated industry — came to dominate the global landscape.
The evolution of Liberalism: The niche
Only thirty-five years ago, 350,000 people lived in a coastal town along the Persian Gulf. Today, that population has ballooned to 3 million. With such staggering prosperity, Dubai has changed its coastline,and added artificial land, buildings and ports. An immediate implication of the success? Do more.
Indeed, establishing niches has been one of the most successful ways to bring about economic growth ever devised. Critics argue that the neoliberal order was driven primarily by a political cabal called the “”. It turns out, however, that many of the changes came internally from wise decision-makers in developing countries, perhaps struck by the fantastic performance of niche economies like Hong Kong. That city-state, built on a rocky island, had been left to thrive in a structure of good rules stewarded by a British Financial Secretary, Sir John Cowperthwaite.
“I came to Hong Kong and found the economy working just fine. So, I left it that way,” . Cowperthwaite’s simple rules and hands-off government in the twilight of Britain’s empire gave rise to the shining city-state that the world admires today.
Since 1959 when the small Irish town of Shannon established the world’s first special economic zone (SEZ), a number of countries followed suit. China under Deng Xiaoping instituted some of the world’s most successful SEZs, including it’s first, Shenzhen, in 1979. Others copied. Their performance has lifted more people out of poverty than any reform in human history.
The downside of the traditional SEZ, though, is that most only allow for tax and duties relief. For any other major issues, including commercial dispute resolution, one has still to deal with flailing, often corrupt states. (Dubai avoided this problem by building in a commercial dispute resolution system called the , which imported UK Common Law.)
With the traditional SEZ, we’re not as likely to see the kinds of experimentation needed to discover new ideas for government. Most SEZs have models that, though they work, retain some of the more corrosive aspects of hybrid liberalism, the corruption of which (again) liberals have warned “would happen”.
Free Private Cities: The next stage
In the interests of full disclosure, I am not only an impassioned advocate of special jurisdictions, I am that will help bring these Free Private Cities into existence. And yes, negotiations with interested governments have already begun.
So what is a Free Private City? Imagine a private company offers you the basic services of a state, such as the protection of life, liberty and property, within a territory. You pay an expenditure-based amount for those services. Apart from that, you’re free to do as you choose. Your rights and obligations are laid down in a contract with the provider. Conflicts about its interpretation go to independent arbitration. Thus, as a contracting party, you’re on an equal footing with the governance service provider. Your legal position is secured as opposed to being subject to the whims of politics.
Why Free Private Cities as opposed to the standard model of governance? There are six reasons:
- Certainty. The city operator cannot change the contract unilaterally. Clear, stable and understandable rules of the game – the result of an actual contract struct between citizen and city – reduce what economist Robert Higgs refers to as “.” Such clarity and stability makes it more likely that investors can send capital into support budding enterprises.
- Recourse. Under conditions of “sovereign immunity,” citizens have little recourse when police or authorities abuse their power. Government justifies its authority though appeals to an abstract “social contract”. New regimes, claiming mandates for change, can make life tough for ordinary people and businesses. Their only recourse is to pray for change during the next election cycle–if there is one. In a Free Private City, the contract is real.
- Scale. What is the optimum size of a jurisdiction? How many people should be governed? Answers to these questions are debatable, but when we consider that some of the most stable and prosperous societies are reasonably small — e.g. Hong Kong, Dubai, and Luxembourg — there is a strong anecdotal case for bottom-up, location-specific governance.
- Competition. The difference between a collection of small jurisdictions and one massive monolithic jurisdiction is that, in the former, you get pluralism, experimentation and competition. In short, if you don’t like Hong Kong, you can vote with your boat.
- Experimentation. Nobel laureate in economics Douglass North reminds us that, “The organisations that come into existence will reflect the opportunities provided by the institutional matrix.” Based on the rules, you’re more likely to get either more piracy or more productivity. But to find out what works best, let’s run multiple experiments.
- Skin in the Game. The incentives for the Free Private City operator are fundamentally different from legacy states. First, the operator has a direct economic interest in the success of the community. Second, the operator can be held liable for errors and cannot conceal responsibility or shift costs. Finally, unhappy customers will exit.
I am under no illusions about the words “free” and “private,” which carry certain stigmas. But when one considers that private in this context means contract-based provision of both “public” and “club” goods, some of those stigmas should fade.
By Titus Gebel
This article was first published at CapX